The Adani Group continues to use debt financing to grow its existing businesses and enter new industries. A report by Business Standard stated that the combined gross debt of the group companies reached a new high of ₹2.22 lakh crore at the end of March 2022, up 42 percent from ₹1.57 lakh crore a year ago.
As a result, the group’s gross debt-to-equity ratio was at a four-year high of 2.36 at the end of March, up from 2.02 a year ago and a low of 1.98 at the end of FY19, added the report.
"Adjusted for cash and bank balance available with various group companies, the group’s net debt-to-equity ratio rose to 2.07 at the end of FY22, the highest since FY18. As of March-end, the Adani group companies were sitting on cash and bank balance worth ₹26,989 crore.
This makes the Adani group one of the most indebted among India’s top business groups," the BS report informed.
It is important to note that the analysis is based on the combined finances of the seven listed Adani group companies -- Adani Enterprises, Adani Ports & SEZ, Adani Power, Adani Transmission, Adani Green, Adani Total Gas, and Adani Wilmar.
Adani Ports is yet to declare its financial results for the fourth quarter for FY22 and FY22. Given this, Adani Ports’ latest balance sheet is for the period ended September 2021 (H1FY22) in the sample, while its latest profit and loss numbers are for trailing 12 months ended December 2021.
Among other major Group companies, Reliance Industries’ gross debt on a consolidated basis was up 4.2 percent YoY in FY22 to ₹2.82 lakh crore at the end of March this year, stated the report. The company's gross debt-to-equity ratio, however, improved to 0.36 in FY22 due to double-digit growth in its net worth last fiscal, it added.
Meanwhile, AV Birla companies deleveraged their balance sheet last fiscal. The combined gross debt of the group listed companies was down 6.1 percent year-on-year during H1FY22 to ₹1.43 lakh crore from ₹1.49 lakh crore a year ago, it said. As a result, the group’s average debt-to-equity ratio improved to 0.99 at the end of H1FY22 from 1.1 at the end of H1FY21. Key AV Birla group companies include Grasim, Hindalco, and AV Birla Fashion.
"Analysts, however, say the Adani group's headline debt may seem high but there has been a big improvement in the group debt-servicing capacity in recent years due to a jump in group earnings. Besides, a general decline in interest rate in the economy in the last two years has resulted in muted growth in interest cost despite faster growth in borrowings," the BS report mentioned.
Adani group companies’ combined interest cost was up 10.7 per cent year-on-year in FY22 against a 22.5 per cent jump in their combined operating profit last fiscal.
As a result, the group interest coverage ratio (ICR) improved to a decade high of 2.85 in FY22 from 2.57 in FY21 and a low of 1.51 in FY17. On the flip side, the group's ICR is still the lowest among the country's top business groups, said the report. There is a risk of a much faster rise in Adani group's interest cost in FY23 and beyond to the recent rise in interest rates.
The group companies, however, have the flexibility to raise additional equity from the secondary market given the group’s combined market capitalisation of ₹14.27 lakh crore on Monday, nearly 6.4 the group’s gross debt, it added.